Our Economy and its Key Components - Part 2

Tuesday, November 3rd, 2015

Our objective in the current series of the American Values Investments newsletters includes discussing several of the key components subsumed within what we typically refer to simply as "the economy." In our most recent piece, we dealt with the U.S. Federal Reserve System, the national debt, and federal entitlements spending.

We'll now move to the all-important combination of unemployment and wages, followed by a quick look at our federal tax behemoth. Before touching these areas, it's ever-so-important to note that more than two-thirds of our nation's economic juggernaut -- call it total GDP if you'd rather -- is tied to consumer spending. As such, a look at these two topics is crucial to an understanding of the nation's financial health and vitality.

Our third topic will involve the progressively more burdensome U.S. regulatory quagmire. This area is recognized for its steady expansion, especially under the current administration. But since it generally flies under the media's radar, at least a quick glance at our expanding body of rules and regulations seems warranted.

Unemployment: Bigger and More Complicated Than You Thought

One of the obvious truisms among economists is their tendency to ballyhoo data that supports their beliefs, while turning a blind eye toward those that do not. This tendency stood tall with the release of October 2015 U.S. wage and employment metrics on the first Friday of November.

According to reports by most scribes, the Bureau of Labor Statistics' (BLS) disclosure of a higher-than-expected jump of 270,000 new job-holders signaled the arrival of a robustly stronger economy. Indeed, add in the 0.4% increase in average hourly wages and a 5% slide -- to 5.0% -- in the portion of the workforce that remains unemployed, and you've removed all doubt regarding the economy's significant upward trajectory. Maybe.

But before you join much of the community of economists in a celebratory toss of your fedora, you should be aware of a couple of additional details. For instance, that 5.0% unemployment figure uses as its "unemployed" numerator only those who have looked for work within the past four weeks. The resulting quotient is termed the U-3 rate. But the more inclusive U-6 real unemployment rate factors in all those whose search gap has exceeded a quartet of weeks (the marginally attached) and those with part-time gigs they'd gladly trade for something full-time. By that measure October unemployment came in at 9.8%.

Further, the 0.4% levitation in wages also appears to be cause for at least a token celebration, and in a sense, it just might be. Nevertheless, we shouldn't lose sight of the closely related labor participation rate. In that case, the November proportion of our countrymen who constitute the labor force was 62.4%, the same as September, which had distinguished itself by reaching the lowest level in fully 38 years. On that basis, and with the aforementioned significance of consumer spending to our GDP, it'll be some time before we're able to apply the unquestionably scientific term "rip-snorting" to U.S. financial circumstances.

Time For a Sharp Tax Ax...

Along the same lines, personal and corporate tax levies affect consumer outlays, as well as wage and employment statistics. For that reason, among others, the tax proposals proffered by the candidates for president will be among the most significant aspects of our coming quadrennial election. Most of those candidates have provided us with at least a whiff of their tax recommendations. Once all have done so, we'll publish a column dealing with the differentials among them.

For now, you likely realize that we in the U.S. are saddled with the highest rates -- individual or corporate -- in the industrialized world. However, should you be among the minuscule portion of our citizenry intent on forking over an even greater percentage of your shekels to the government, you're pretty much limited to relocation to Belgium, Sweden, Norway, or Luxembourg to achieve your goal. Conversely, and despite the relative euphoria surrounding the reportage of the BLS's October numbers, perhaps the primary elixir for what remains a pallid American economy is a well-sharpened tax ax.

...And a Bevy of Chain Saws

Early in his presidency, Barak Obama found utility in substituting regulatory initiatives emanating from his executive branch for those that might have been initiated by the congress. Of course, he wasn't the first president to have done so, just the first to have attacked the project with such vigor.

Specifically, during 2013 alone, federal regulators added a whopping 2,185 new regulations to those already on the nation's bulging books. Fully 77 of that total were classified as "major." Obviously, in 2013, the administration picked up speed beyond even its own prior pace. Its first five years resulted in a total of 157 major rules being enacted. That made for an annual average of more than 30 major rule implementations. For the sake of contrast, that average amounted to more than double a comparable figure for George W. Bush's years in office.

Obviously, those major 2013 rules were the most impactful and costly of all the regulations implemented during the year. But by how costly were the thousands of lesser regulations? No one really knows. You see, cost-benefit analyses aren't required for rules that don't meet the major standard. So we really have at best minimal knowledge of the cost of more than 2,100 of 2013's newly-promulgated rules. After all, essentially every regulation that's added carries -- in addition to its hard costs -- other duties, such as those tied to lost liberties.

It's difficult to contest the notion that substantial reforms constitute a crucial need on the next administration's docket. First in line probably should be the necessity of congressional approval before any additional major rule is hammered into place. But once that important alteration has been completed, there'll be plenty of work remaining for at least a battalion of chain saws.

More about the author, David Lee Smith

As a consultant and contributing author for American Values Investments, Inc. David Lee Smith is an economist, investment analyst, and writer. He and his wife, Virginia, are active members of Christ Our Savior Lutheran Church and often enjoy attending sporting events especially UT football, basketball and tennis.

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